Economists have warned that this will reduce consumer spending and the overall economy at a time when new cases of coronavirus are exploding, particularly in the densely populated south and west, and are forcing some authorities in those regions to close again activities or to suspend reopenings.
“The road ahead for the consumer seems a bit hazy and uncertain to say the least,” said Chris Rupkey, chief economist at MUFG in New York. “July spending faces headwinds from states that are retreating due to the second wave of coronaviruses. Spending for the month of August is questionable, as these additional unemployment checks of $ 600 per week stop at the end of July.
Retail sales rose 7.5% last month after jumping 18.2% in May, the biggest gain since the government started following the series in 1992. Economists polled by Reuters expected retail sales to grow 5% in June.
Retail sales rebounded as businesses resumed operations after being closed in mid-March to slow the spread of respiratory disease. Retail sales in June were boosted by an 8.2% increase in auto dealer revenues. Consumers increased their spending on furniture, clothing, electronics and appliances, hobbies, musical instruments and bookstores. Restaurant and bar receipts increased 20.0%.
But online and mail-order retail sales fell 2.4%. Sales also fell in building materials and grocery stores.
Wall Street stocks were trading less because of concerns over the explosion of coronavirus cases. The dollar slipped against a basket of currencies. The prices of the US Treasury have gone up.
Excluding autos, gasoline, building materials and food services, retail sales rose 5.6% in June after increasing 10.1% in May. These so-called core retail sales most closely match the consumer spending component of the gross domestic product report.
FILE PHOTO: People line up outside the Kentucky Career Center before it opens to find help with their unemployment claims in Frankfort, Kentucky, United States, June 18, 2020. REUTERS / Bryan Woolston
The rebound in basic retail sales did not change expectations. Consumer spending collapsed in the second quarter. However, it put spending on a higher growth path for the third quarter.
Economists expect consumer spending, which accounts for more than two-thirds of US economic activity, to decline at an annualized rate of 35% in the April to June quarter. This could lead to a drop in GDP of around 31% over this period. The economy contracted at a rate of 5% in the quarter from January to March, the largest contraction since the great recession of 2007-2009.
“Activity declined in May and June, albeit at lower levels than before the pandemic,” said Michael Feroli, chief economist at JPMorgan in New York. “More recently, several high-frequency indicators suggest that May and June were the easiest months, and that the resurgence of COVID-19 cases leads to a slowdown in activity gains in July.”
The Labor Ministry said on Thursday that 1.30 million people had applied for unemployment benefits during the week ending July 11, down 10,000 from the previous period. Economists had forecast 1,250 million requests last week.
The weekly jobless claims report, the most recent data on the health of the economy, showed large increases in California, Georgia, Florida and Washington State, which are experiencing a large increase in cases of COVID-19.
Claims for the first time peaked at a historic 6.867 million in late March. They remain about double their highest point during the great recession of 2007-2009. Including a government-funded program, 2.23 million people filed claims last week.
The number of people receiving benefits after the first week of assistance fell by 422,000 to 17.338 million in the week ending July 4. These so-called continuous requests, which are reported one week late, reached a record 24.912 million in early May.
In the last week of June, 32 million people received unemployment checks from all programs, 433,005 fewer than the previous week. According to economists, this figure, reported with a two-week lag, offered a more accurate reading of the labor market.
Economists say unemployment remains uncomfortably high due to a second wave of layoffs, which could intensify as COVID-19 infections lower demand and increase bankruptcies, particularly in the retail sector. American Airlines announced Wednesday that it is sending 25,000 notices of potential departures to front-line workers.
“The data probably underestimates the true state of the job market,” said Joel Naroff, chief economist at Naroff Economics in Holland, Pennsylvania. “Companies are starting to warn that there may be major layoffs in the coming months. “
Report by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci
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